Japanese economy rebounds after first-quarter dip

10.08.2018

Japan's economy grew more than expected in the second quarter, helped by strong household and business spending and a recovery from an earlier contraction. But global trade tensions loom as a major risk to the outlook.

Japan bounced back to growth following its first contraction in two years, official figures showed Friday, with gross domestic product (GDP) expanding by 0.5 percent quarter-on-quarter in the April-June period, compared with a 0.2-percent decline between January and March.

In a sign the economic recovery was broadening, domestic demand was the main driver of growth. Private consumption, which accounts for about 60 percent of the economy, was the biggest contributor, rising 0.7 percent on brisk demand for cars and home appliances, the data showed.

The data represented a quick turnaround to a series of eight consecutive quarters of growth not seen since the heady days of Japan's boom of the 1980s. The rebound is largely attributed to Prime Minister Shinzo Abe pro-spending "Abenomics" policy blitz, which combines ultra-loose monetary policy and fiscal stimulus in a bid to fire up the world's third largest economy.

"Things are going well, but given questions around trade friction, there is a lot of uncertainty whether things will continue to go well," Finance Minister Taro Aso said in a statement.

US President Donald Trump is pushing Tokyo to sign a bilateral free trade agreement and has threatened to impose higher tariffs on auto imports including those from Japan.

The two countries failed to reach any consensus in talks on Thursday after Japanese Economy Minister Toshimitsu Motegi insisted on Tokyo's position that it preferred multilateral free trade agreements over bilateral ones.

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Marcel Thieliant, senior Japan economist at Capital Economics, said that growth similar to the second quarter could be penciled in for the third and fourth quarters, but also warned about "downside" risks from trade disputes. "We are quite certain there will be some sort of tariffs on Japanese cars. It's a question of how much," he said in a note to investors.

In addition, Japan's ongoing recovery is increasingly causing labor shortages worsened by a rapidly ageing population. This helps push up wages but has also caused capacity constraints because some companies are shortening operating hours due to a lack of workers.

Among other factors threatening to impact Japanese growth in the current quarter is record rainfall in western Japan last month and a deadly heatwave that together claimed a total of 324 lives.